Why It Rarely Pays For Both Spouses To Delay Social Security Benefits | Nerd's Eye View by Michael Kitces
Published: July 15 2015
The decision of whether to delay Social Security benefits is a trade-off: give up benefits now, in exchange for higher payments in the future. If the higher payments are received for enough years – dubbed the “breakeven period” – the retiree can more than recover the foregone benefits early on, even after adjusting for inflation and the time value of money.
With couples, however, the decision to delay is more complex. Earning delayed retirement credits can not only boost an individual’s own retirement benefit, but increases the potential survivor benefit as well… which means the breakeven can be reached as long as either member of the couple remains alive long enough! Which makes delaying benefits even more appealing, as the odds of at least one member of a couple remaining alive is better than the single life expectancy of either member in particular.
However, delaying retirement to generate a larger survivor benefit is a moot point if the survivor already has a larger benefit of their own. In fact, a higher-earning spouse makes it less valuable to delay at all, as the other person’s survivor benefit may overwrite the delayed benefit altogether, and thus the couple loses if either member of the couple passes away too soon!
Which means ultimately, the ideal strategy for most couples is for the higher-earning spouse to delay as long as possible (which benefits them as long as either remain alive) but to start the lower-earning spouse’s benefits as early as possible, which is only beneficial in the less likely scenario that both of them remain alive into their 90s and beyond!